One of the concepts that emerged from military and public discourse since the outbreak of the Israel-Hamas War is "Missile Economics." It’s not enough to have the best missile or bomb; you also need to maintain a large enough stockpile to meet your needs and the capability to replenish that stockpile in the event of a prolonged war. Even in developing weapons that can fly at speeds of thousands of kilometers per hour, armed with warheads and sophisticated sensors, it all comes down to money.
Israel's state commission of inquiry into the war will also need to address this issue, as prior to October 7, along with political and intelligence failures, there was a significant shortcoming in adequately equipping the Israel Air Force, armored units, and artillery with sufficient munitions.
The unwritten rule is that the interceptor missile always costs more than the missile being intercepted. Defense is more expensive than offense. This was the situation with the Patriot system against Scud missiles in the Gulf War of 1991, and it’s been the case with Iron Dome interceptors against rockets from Hamas and Hezbollah since 2011.
This is the equation that the "Iron Beam" laser interception system, currently being developed by the Defense Ministry and Rafael, is trying to change. The first operational laser systems are expected to be delivered to the IDF by the end of 2025. Instead of using a hidden missile that costs around $100,000, it reduces the cost of interception to just a few dollars for each shot, which is essentially the cost of electricity. Even when adding maintenance and wear costs, this represents a significant economic-security revolution.
According to IDF reports, Iran launched 181 ballistic missiles at Israel this past Tuesday, and the IDF's air defense system intercepted most of them. The United States, through its missile destroyers, intercepted 12 missiles, according to American reports.
This means that the Iranians launched about 200 missiles, with a few falling along the way in Iran and Iraq. A ballistic missile with a range of 1,500 to 2,000 kilometers is expensive. Estimates suggest that it costs the Iranians at least one million dollars to produce each missile, and they employed advanced models such as Emad and Kheibar, and even the Fattah-1, which is claimed to be hypersonic—meaning it can fly and maneuver at speeds exceeding five times the speed of sound—in an attempt to deceive the air defense systems trying to intercept it.
Around $200 million is a hefty sum for a missile barrage and certainly not an insignificant portion of Iran's missile stockpile. However, from Tehran's perspective, it represents a relatively light hit to their finances.
According to a Reuters report, Iran has managed, even under international sanctions, to export oil worth $35 billion annually. This missile barrage cost them the equivalent of just two days of exports—not something they would do daily, but also not an expense the country would struggle to manage every few months, especially while neglecting other branches of the military to invest in missile technology.
Israel's use of Arrow-2 and Arrow-3 air defense systems
In response to the Iranian missiles, the Israel Air Force launched Arrow-2 and Arrow-3 missiles produced by Israel Aerospace Industries. The arrows are not fired against missiles identified by the system as targeting uninhabited or militarily insignificant areas.
However, the Iranians used more precise missiles this time, which likely improved their targeting accuracy compared to previous attempts, necessitating more interceptions.
The IDF has not disclosed how many Arrow missiles were used or whether it also required the use of David’s Sling or Iron Dome to intercept larger fragments or parts of Iranian missiles that are not warheads but could still cause secondary damage.
The older Arrow-2 missile, which intercepts its target at altitudes of tens of kilometers in the atmosphere, costs about $3 million. The newer Arrow-3 missile, which intercepts ballistic missiles in space at greater distances from Israeli borders, costs around $2 million.
However, even if approximately 180 Arrow missiles were used, utilizing both types, the interception cost would be about $450 million—more than double the cost of the Iranian missile barrage.
According to the World Bank, Israel's GDP per capita is more than double that of Iran: $50,000 compared to $20,000 in 2022. However, Israel is a country of 10 million people, while Iran has 90 million. Most of the funding for the Arrow interceptor procurement has come from the United States, which has invested around $4 billion in the project to date.
As long as the US is willing to continue funding Israel’s air defense systems, as it does for Iron Dome and David’s Sling, the main limitation will be the production pace at Israel Aerospace Industries and Rafael, as well as the procurement of essential components.
The Biden administration initiated, and Congress approved, a special budget of $14.1 billion since the outbreak of the war, of which more than $4 billion is designated for replenishing interceptor stockpiles and advancing the development and procurement of the laser system. However, the laser will not be powerful enough in the near future to intercept ballistic missiles, and continued US investments depend on the relationship between the two nations. When it comes to air defense, without American funding, it would be a heavy burden on the defense budget.
As Israel considers its response to the latest Iranian attack, it’s important to remember that we can significantly undermine Tehran's ability to acquire additional missiles, either through military action that destroys their production facilities or through economic measures targeting their oil production and export systems that finance these efforts.
Regardless, it's unclear why Israel’s response is delayed and why the government is not taking advantage of the holiday period when most Israelis are not working or in school and are close to bomb shelters to launch this response and prepare for the potential Iranian retaliation that may follow.